Finding Text
Department of Housing and Urban Development Finding 2023-001 Section 202 Supportive Housing for the Elderly, AL 14.157 Statement of Condition During the year ended September 30, 2023, the Organization repaid affiliate advances totaling $23,000 without HUD approval. The advances were made as a result of delays in receipt of PRAC funds used for operations. Criteria The terms of the HAP contract and HUD handbook 4370.2 require repayments of related party loans to be limited to available surplus cash computed on a semi-annual or annual basis unless approved by HUD. As the Organization is a nonprofit and does not receive surplus cash, HUD approval for repayment was required. Cause Delays in receiving the PRAC renewal funds resulted in the affiliate lending funds to the property to fund operations. Upon final receipt of PRAC funds, the affiliate was repaid a portion of the advances made. Procedures were not in place to ensure that repayment of related party advances were approved by HUD. Effect or Potential Effect The repayment of $23,000 was technically an unauthorized distribution without HUD approval, and therefore considered to be a questioned cost. Questioned Costs $23,000 Recommendation Management should obtain HUD approval of repayment of these advances. In the future, management should request PRAC funding advances, if needed, from the replacement reserve or residual receipts reserve, or obtain HUD approval for repayment to Owner upon receipt of PRAC funds. Auditor Noncompliance Code: H - Unauthorized distribution of project assets (REAC); N - Special Tests and Provisions (UG). Finding Resolution Status: In process. The remaining $23,000 advance was repaid to the affiliate North Texas Area Command on October 7, 2022. Approval of the $23,000 of unauthorized transfers is outstanding as of February 15, 2024. Management is planning to reach out to HUD for approval in the near future. Reporting Views of Responsible Officials The funds were a short-term advance to the property by the affiliate to fund operations, to enable management to continue to provide services to our elderly tenants and pay our staff while the property waited for the PRAC funds from HUD. These funds were not distributed to the officers or owners and the advances were not collateralized. In the future we will obtain HUD approval first, or we will request withdrawal from replacement reserves or residual receipts reserve.